FT Alphaville: Seems We Touched a Nerve

By Ben Dyson (Positive Money) On November 15, 2011 · 102 Comments · In Humour, In the News, Options for Banking Reform, UK Banking Sector

Our article on the Guardian’s Comment is Free section sparked some intense discussion, attracting 350 comments – more than any other CiF article that day excluding the initial announcement of Occupy London’s Occupation of CiF.

It seems we touched a nerve at the FT blog though, where Izabella Kaminska has a few things to say. After a brief attempted character assassination, she makes some fascinating comments, which we’ve highlighted below.

First, the clumsy character assassination, which I can summarise myself: rather than getting a degree in failed economic theories (like the economists who only saw the crisis coming after it had arrived), I quit after two years of study (got a first in both years, mind you). I then worked in a start-up for 2 years, before going freelance, and eventually starting Positive Money. If you really have nothing better to do, you can read the whole story here, but Izabella’s key point is that my lack of an economics degree means you should stop listening now.

Instead, you should pay attention to the same economics professors who only saw the crisis coming after it had arrived.

Still here? Then on to Izabella’s next point:

“Quoting Dyson’s website: “…If we tried not to go into debt, then the banks would be unable to create money and economy would grind to a halt.”

FT Alphaville readers (or anyone who has ever read Niall Ferguson or nearly every other economic historian, or taken even a passing interest in the unit of exchange they use on a daily basis) will, of course, know that that little revelation was probably last considered to be breaking news in 1913.”

I’m not sure of the readership of Alphaville, but I’m pretty certain that the bulk of the population, and most politicians, had no idea at all that our economy would grind to a halt if we tried to avoid going into debt. I wonder whether Prime Minister David Cameron was aware of this when he suggested that we pay off our credit cards to rescue the economy. Maybe Izabella could update him on the breaking news of 1913?

Izabella then goes on to make valid points about the complexity of finance and the crisis. We know all about this: it was that complexity that made it necessary for the authors of Where Does Money Come From? to spend 8 months hunting down facts. (This book, it’s worth mentioning, was inspired after a BBC documentary producer called the Bank of England to ask for a clear explanation of how money was created, only to be told that there was no document that did this and she would need to do the research herself).

Then the article goes on to say that:

“The reason we can’t find a clear consensus on the debt crisis, is because the most obvious solution is clearly not a workable one. At least not without a huge material impact on the quality of life of every living soul in Europe (or further afield). Something everyone is trying to avoid. The challenge thus comes in finding a solution which is palatable, above all.

That’s not to say the solutions to the crisis won’t necessarily be simple. They could very well be. But that’s not our point here.”

Of course, the solutions could be simple. Our solution is so astoundingly simple that most economists find it extremely difficult to understand. They seem to find it much easier to understand how, when people are struggling under the weight of greater personal debt than ever before, the answer is to ‘get banks lending again’, in other words, pile on more debt. That’s something I’m struggling to understand, but perhaps I should ask someone with an economics degree.

But then Izabella makes one of her best points:

“Our point is that we’ve all been lax. The media especially. We’ve failed to communicate the message correctly. The message should not be that all debt is bad. Rather that, some debt (and here’s a wacky idea), some debt, is actually good.”

Absolutely. I thought we’d made that point on this site. The type of debt that represents investment in productive business, and which makes up just 8% of bank lending, is brilliant. The type of debt which is to fuel speculation or inflate house price bubbles, which makes up the other 92% of bank lending, is not so good. (Some of it might have a purpose, but none of it contributes to GDP or growth).

“Without debt, after all, you can’t have money.”

Well, no. This little ‘factoid’ is actually not a fact. If you allow banks to create all money as debt, then yes, we (the public) need to go into debt to have money. But we are arguing that this is precisely the problem, and that the solution is to have money that is created free-of-debt. I can explain in detail exactly how this is done, for anyone who’s prepared to go beyond their undergrad economics textbook and give it up to 3 minutes of hard thought.

Moving on:

“[I]t’s not necessarily debt that is bad — since debt actually allows you to risk-manage your life…By borrowing from the future anyone’s life experience can be a better one.”

Agreed. But if you’re forced to borrow 11 years’ future income because excessive bank lending (and therefore excessive creation of money) has caused real house prices to double, relative to earnings, then your life experience is actually worse. You’re paying more for less. The house isn’t any bigger, but you’ll pay twice as much.

“Debt is thus a hugely efficient wealth distribution mechanism.”

Yes, hugely efficient. The problem is that it tends to redistribute it from the bottom 90% to the top 10%. I don’t know the salary of an FT Alphaville blogger, but it would need to be over £44,881 to get in that top 10% (2009 figures, sorry), which might sway the author’s enthusiasm for this ‘wealth distribution mechanism’.

“What Ben Dyson misunderstands is that no matter where the paradigm shift eventually takes us, it will never rule out debt completely. Or, for that matter, centralise its distribution at one focal point.”

Unfortunately, what Izabella Kaminska misunderstands is that we weren’t demonising debt. We were questioning a system in which the monopoly on creating the numbers that we use as money is given to the same banks that caused the crisis. We were questioning a system that forces the population into debt to the banking sector simply in order to have a means of exchange so that trade can take place.

It’s a simple question, and repeating the textbook fairytale of banking doesn’t count as an answer. But then, as Izabella points out, the media have been lax.

About The Author

Ben Dyson (Positive Money)

Ben has spent the last 4 years figuring out what's wrong with the financial system. He now spends his time working on the Positive Money campaign, working with MPs, think tanks, charities, academics and unions to promote a better understanding of the real issue with debt-based money and fractional reserve banking. Ben spends his free-time looking at how Irving Fisher's 100% reserve solution could be implemented in the digital-age UK (see Positive Money's joint submission to the Independent Banking Commission for full details) and intends to regain a social life once the money/banking issue is fixed (2015?).

Visit Authors Website →

Anders

Ben – have you got an account of how 100% reserve banking is compatible with non-bank desire for maturity transformation?

In other words, given that asset-rich households typically want to hold lots of their wealth in short-term form, but businesses (and asset-poor households) typically want to borrow long, are you saying you would thwart these desires?

http://jcjpottery.co.uk Jonathan Chiswell Jones

Banks which will be needed to bridge this gap between those who want to liquid assets and those who need long term loans, can still operate, but only funded by equity on a one for one basis. I lend to the bank; I shoulder the risk, loss or gain. Those who simply want the bank to keep their savings safe should not expect a return on these funds. Indeed they should be willing to pay for this service and for the convenience of bank organised settlements of their payments.

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Frances Coppola

Not once do you mention the other side of debt, which is savings. Yes, bank balance sheets do expand when they lend because of deposits created as part of double entry accounting, and because M4 – “broad money” – includes these bank deposits as well as those that are “real savings”, it increases as a result of bank lending. But to say that people don’t benefit from this money creation process is nonsense. Yes, housing price increases make it harder for people to buy property in the first place. But for those who have already bought – who may not be particularly rich otherwise – house price increases are a major source of savings for their futures and for many the ONLY way of funding their care when they are elderly. A LOT of people – not just the 10% you mention – have their savings tied up in the house they live in. So yes, there are people who suffer because of house price increases – but there are also people who gain. It’s a zero-sum game.

donald dietrich

@ Frances Coppola

Frances you could do with reading “Where does money come from?” It explains in detail how banks create money. They lend nothing.

As for house prices and affordability, I don’t think Ben is suggesting that nobody benefits from housing investments. Bankers profit most of all. If some bought when prices were affordable and tied to the average wage and profited from it, fair enough. Although, the person that bought their house during the boom for instance have made a poor investment and therefore most likely will not profit as easily and may even loose their home do to the strain on their income in relation to their payments. Let alone, pay for elderly care later in life. The description that Ben gives in one of his videos is a perfect example of how in order to get a positive balance in your account, someone needs to drop below £0 into debt. This is the problem. Would you be against house prices following the average wage? Which is beneficial to everyone. Or are you happy with booms and busts just so half can profit. Would you hoard food while someone else starves, or would you share the food fairly so you both could live modestly? This is no attack on you, but our current system is unfair in many ways and this is precisely why we need Positive Money. To expose the problems and find solutions.

Frances Coppola

Dear, oh dear. Actually I do understand very well how fractional reserve lending works, and what I said is accurate.

Your reply suggests that the fundamental dynamic of saving and borrowing – which is the fabric of our society – should be destroyed. Yes, for someone to have savings someone else has to be in debt. That was the point of my comment. Your reply buys into the fallacy that Izabella identified, that debt=bad. No it isn’t, necessarily. Borrowing from those who “have” to fund the needs of those who “haven’t” (yet) is the basic principle of financial intermediation. I would be the first to say that banks have massively failed in their responsibility to manage the risks involved in financial intermediation and credit creation. As did Izabella, actually. But to say the whole system has failed – no, I don’t think so.

And you are factually incorrect about house prices. They have never followed the average wage. Nor should they while interest rates on mortgages are variable. Affordability is not to do with amount owing, it is to do with the cost of financing.

donald dietrich

Right, Frances

I don’t say that, saving to fund borrowers should be destroyed. Under PM proposals, current accounts wouldn’t be touched. Savings/investment accounts would offer the means to the borrower but will not be insured by the taxpayer. So the investor would split the risk with the bank ensuring less risky lending, for the bank does not want to lose money. So debt in this way is not bad, it is completely necessary. We wouldn’t suggest the MPC lend for mortgages etc.

Fractional reserve lending that you know alot about is outdated. Banks dont wait for reserves before they lend. They lend first and square things up at the end of the day. Also fractional reserve lending would mean at some point lending becomes finite, but it doesn’t. Banks just keep creating money regardless of the reserve ratio. In 2007 you could only collect £12.50 for every thousand deposited. Is this the fractional reserve you know? 1.2%

If we didn’t give the banks a bailout, would you say that the system has failed?

Thank you for pointing out my factually incorrect statement. The last thing I want to do is spread misinformation. As for house prices not following the average wage. What I was referring to was that banks used to lend responsibly say, in the 50′s/60′s. They used to lend only 3.5 times your wage. So house prices would grow along side the wage of the borrower. During the boom,”2007″ they would lend up to 8.9 times your wage. Had their been a rule of 3.5 times your wage since the 50′s, would we have house price bubbles? And would housing be affordable today? I belive that affordability has alot to do with the amount owing and the cost of financing. Two sides of the same coin.

Frances Coppola

Please don’t assume what you think I know about fractional reserve lending. I know perfectly well that lending precedes reserves. I’ve written about this myself, and argued the toss with numerous people about whether the fact that lending precedes reserves really makes much difference. In the end, books have to be balanced and funding has to be found, from the wholesale marketplace if necessary – which is simply another source of deposits.

You mention bailouts – and there you are heading in the right direction I think. Banks were able to leverage up lending so much because of implicit government guarantee. With an unlimited guarantee from a sovereign government in effect backing all lending, highly-leveraged lending is not irresponsible. Depositors and bondholders were not at risk, so there was no reason to restrict lending. The people at risk, of course, were taxpayers. Dismantling that government guarantee is essential – but to do that requires savers and bondholders to accept that their money is “at risk” and hold financial intermediaries (not just banks) accountable for managing that risk to the overall benefit of the saver. I appreciate that this does form part of your proposal, but it requires a major cultural shift which shows absolutely no sign of happening at the moment.

But the other side of all debt – even leveraged debt – is savings. The highly-leveraged lending of the 00s is balanced by a worldwide savings glut. Which caused which is a matter of debate – it’s all a bit chicken and egg, really. But leveraged lending is associated with excess savings. As I said, the dynamic between borrowers and savers is a zero-sum game.

I do think you should avoid conflating the savings/borrowing dynamic and associated risk management with who controls the money supply. They are quite different things. Personally I don’t want government – in any form, including the MPC – controlling the money supply. Even a brief study of economic history gives plenty of examples of disaster arising from political control of the money supply. I don’t want to go there.

DozyHole

“Not once do you mention the other side of debt, which is savings”

Well that’s the whole point, in the current system the debt is not mirrored by savings. A full reserve system would make your statement true, but you don’t seem to want that.

Frances Coppola

Er, no, the other side of debt is ALWAYS savings – even leveraged debt. Globally, debt and savings are balanced (assets and liabilities on global balance sheet, if you like), so debt increase must be matched by increase in savings. Within an individual country debt and savings may not balance, of course, unless there are capital controls, because savings and debt are global phenomena. I think you probably need to reconsider what you mean by savings.

DozyHole

Hmm, lets try to simplify the matter somewhat.

I get a loan from the bank, they credit my account with £10000 of new money/credit which has just come into existence for the purpose of the loan.

Can you explain how that is backed or mirrored by savings in any way?

Frances Coppola

OK, you use that loan to buy a car. At the end of that transaction you have an asset worth (at the point of sale) £10,000, and £10,000 of debt. The seller no longer has a car but has £10,000 in new savings (savings in this case meaning money that has not yet been spent). Broad money (M4) has increased by £10,000 overall, made up of debt of £10,000 balanced by new savings of £10,000. In this example debt precedes savings, but as I said earlier, that is a matter of debate.
DozyHole

Lets simplify your example a little.

Using your logic, before I buy anything then I have £10,000 savings? So my loan is my own savings?

Contrast this to the bank actually taking the £10,000 from somebodies savings. This is what should happen imo and it is what most people think is happening.

As you will know of course, the difference here is in my version the car would be bought with money that represents somebodies(the saver) past productivity and not the lenders future productivity.

The latter version just feels more grounded and safer for the economy, not have now and pay later but pay now and have later.
Graham Hodgson

@DozyHole
“it is what most people think is happening”

Exactly.
In everyday parlance, savings are what people have decided to exclude from their normal expenditure. It is really stretching things to include in savings what remains in our current accounts because we still have to live till next payday. If payday arrives and our account stands at zero we haven’t saved anything at all, unless it’s at zero because we made the deliberate decision to pay into a savings scheme. You can make the facts fit any theory you like if the words your theory uses mean precisely what you intend them to mean.

Simon

Problem is Frances, is that it has been a huge transfer of wealth from young to old. I say this as someone who has a a house without a mortgage. I bought first in 1979 when a terrace house in the north of the UK was very affordable. I am thinking of my daughter and her friends who do not have the same opportunity that I had. Bank lending, or any lending for that matter should be focused on the real economy, not pumping house and asset prices which do not add to real wealth. The government has borrowed too much also, mainly to finance social security spending, pensions, and non essential public sector jobs, rather than borrowing to improve infrastructure.

Frances Coppola

Simon, I totally agree. From a social perspective both bank lending and government borrowing have become excessive and created a future burden on our young people. I have two children myself and I worry about their financial future. But blaming banks for the failure of governments to either understand or manage the financial system, or the planning system for that matter (which is largely to blame for the shortage of houses that has contributed hugely to house price inflation), doesn’t address the problem. While government continues to underwrite lending in the name of protecting savers, banks will continue to take excessive risks, and taxpayers will be on the hook for bailing them out. We do need as a country to reduce our debt: the UK is the most indebted country (private and public sector) in the Western world. But there are no quick fixes for that, sadly. It simply has to be paid off, and we have to learn not to substitute debt for real income any more. The price we will pay for that is a painful economic adjustment and in the end a smaller economy, I believe.

Ben Dyson (Positive Money)

“While government continues to underwrite lending in the name of protecting savers, banks will continue to take excessive risks, and taxpayers will be on the hook for bailing them out. “

Very true, and very well put. Thanks Frances.

We do need as a country to reduce our debt: the UK is the most indebted country (private and public sector) in the Western world. But there are no quick fixes for that, sadly. It simply has to be paid off,

The problem with simply paying it off in the current system is that loan paid off reduces the money supply. Less debt = less money. Less money circulating usually leads to a recession. A recession usually leads to job losses and salary freezes, making it very difficult to pay down the debt any further. We’re in a catch 22 situation. We can’t reduce the debt by paying it off, because that would shrink the money supply. We can’t increase the money supply, because that would require that we go further into debt.

The only solution to this is to have another source of money, debt-free, which can only really be the state. Of course, guarding against excesses of money creation is essential, and politicians aren’t the right people for the job, but neither are bankers.

Frances Coppola

Ben,

I don’t agree with this. Printing money while reducing debt leads to inflation, because you are increasing the money supply while reducing the assets on which it can be spent. History is littered with examples of this. On what basis do you assume that this time it would be different?

The reduction in the money supply that comes from net saving (public and private) is currently being eased by QE, which is a form of money creation sterilised by equivalent asset purchases. The jury is still out on whether or not this is inflationary.

My argument with the Government is that concurrent deleveraging of private and public sectors, which is what they are attempting, is bound to cause recession unless exports increase, which seems unlikely. Therefore personally I would prefer them to delay the necessary restrictions in government spending until the private sector is ready to increase its spending. Otherwise we will have a very painful adjustment.

Of course, you might want to inflate your way out of debt instead of paying it off – which is in effect what you are proposing. But that is equally painful and very damaging to the prospects of future generations – including yours.
Ben Dyson (Positive Money)

Of course, you might want to inflate your way out of debt instead of paying it off – which is in effect what you are proposing.

No, it’s not. But we will need to write more about this as it’s obviously not clear to people what we’re actually proposing. No time to go into detail today, unfortunately.
Nic the NZer

I am frankly surprised the following is not obvious to someone who just covered so many key points. What causes most inflation is the spendable money supply.

Pre reform this depends on the aggregate behaviour of the financial institutions and how much debt people are accepting. I think you should exclude some money as spendable roughly equivalent to the cost of servicing the debt.

Post reform this depends on the decisions of the MPC. But if both lead to the same amount of money being available to be spent this will not be inflationary (on aggregate).

More = inflationary, less = deflationary. This also explains why QE has not been inflationary (literally doubling the monetary base in the US). More debt has not been taken on (in fact its being paid back), so more money has not become spendable (it’s still in the banks) so no inflation. In economics technobabble this is called a ‘liquidity trap’, a term invented because the ‘money multiplier’ implies that doubling the monetary base will double the money supply.

Yes, we both agree that many debts are being paid down. This means that many governments imposing austerity are behaving in pro-cyclical manner, more economics technobabble, or in more plain english exacerbating the recession!

Since the base money supply has doubled in the US, if the money multiplier does apply, eventually the ‘inflate your way out of debt’ thing will kick in, but that’s already baked in.

The best thing about the MPC having control of the total spendable money, is that they can reduce the total if they deem that the right policy. Good luck trying to cause deflation using a base interest rate.
Nic the NZer

Also to point out how incredibly silly this notion of reforms leading to massive inflation (or the more hysterical hyper-inflation) is.

What is being claimed is that the government will want to create and spend as much money as possible, presumably as a form of vote buying, however this will cause lots of inflation. First of all this can’t ever get out of control, because if the government wants to stop the inflation you just stop creating more money. Note this fact is not true today.

Second what is in effect being argued is that that government is running policies which are at the same time causing un-wanted inflation. Not really a good way to get re-elected then is it.
Frances Coppola

Nic the Nzer

1) True, money that doesn’t get out into the domestic economy doesn’t cause consumer inflation there. In fact QE is arguably deflationary to the domestic economy if banks aren’t lending normally, because of the depression of real interest rates. But banks don’t simply put that extra money in a vault somewhere. They do something with it on the world markets, and that exports inflation elsewhere. There is some evidence that inflation in emerging markets has been fuelled at least partly by US and UK QE.
2) Study after study has shown that hyperinflation is a fiscal not a monetary phenomenon. It is caused by monetization of fiscal deficits and/or government debt. Monetization of fiscal deficits and/or government debt massively increases the money supply very quickly, which makes it virtually impossible for production to increase sufficiently to mop it up. The evidence is once governments start monetizing fiscal deficits they find it very hard indeed to stop doing so – after all, if they stop printing money to cover their deficit they either have to borrow or they have to cut spending quickly and drastically to eliminate the deficit. Your idea that governments would simply stop printing money if inflation started to rise is, sadly, contrary to historical evidence and economically unsound. I echo my question to Ben – what makes you think it would be different this time?
3) You do not discuss how the MPC would decide what the “right” amount of money was, and how a credit crunch would be avoided in a growing economy. Trying to forecast money supply needs seems like the blackest of black arts to me.
4) You assume that the MPC will not be subject to political interference. I think that is a dangerous assumption. A desperate government would always seek to influence monetary policy to ease fiscal problems – as did Osborne this year. The BoE, and the MPC, are owned by the Treasury. Their independence is questionable.
5) Governments do in fact run policies that cause inflation, because inflation is a delayed phenomenon and they believe (as you do) that “it can be stopped before it gets too bad”. Again, there is considerable historical evidence for this.
6) Increasing the base interest rate does have a deflationary effect and is therefore an effective counter to inflationary pressures. It is not an effective counter to monetization, though.
7) I have already commented that fiscal austerity will cause recession if applied to an economy where the private sector is net saving.
Nic the NZer

2) Obviously there is no longer a distinction between fiscal and monetary policy after reforms (because nobody but the government can be a creator or money). This means that if they stop then no increases in spendable money occur.

Yes, you saw hyperinflation in Hungary, primarily because the government was chasing inflation with spending, that’s basically a reason to get rid of the fractional reserve system. You don’t quite seem to have grasped this concept of the government being the only source of new money yet. That will mean that non-government inflation doesn’t happen.

Simon

Three main reasons for excessive house price rises – Too much lending by the banks (only building societies did mortgages 35 years ago), shortage of “affordable” housing, and the sale of council houses which has reduced the stock of social housing. There are still 1 million empty properties in the UK which could be brought into use – problem is they are often in the wrong places, or in poor condition. Restrictive planning has not helped, especially in desirable areas, and developers slowly release new properties to restrict supply and keep house prices high.

Ben Dyson (Positive Money)

But for those who have already bought – who may not be particularly rich otherwise – house price increases are a major source of savings for their futures and for many the ONLY way of funding their care when they are elderly. A LOT of people – not just the 10% you mention – have their savings tied up in the house they live in. So yes, there are people who suffer because of house price increases – but there are also people who gain. It’s a zero-sum game.

Something being a zero-sum game does not make it OK. If someone mugs you on the way home this evening, that’s a zero sum game: the mugger ends up £50 up, and you are £50 down. Is that ok, because someone has won and someone else has suffered?

Essentially what you’re pointing to is a huge intergenerational wealth transfer from anyone born from everyone below the age of 30 to everyone above the age of 50. This was triggered by banks inflating the housing bubble. In the middle of that wealth transfer, much of the money has been creamed off into the pockets of senior staff at the banks.

But to say that people don’t benefit from this money creation process is nonsense

Please give that statement a bit more thought.

Frances Coppola

Ben, you really do need to read what I say a little more carefully. I think your personal feelings of envy and anger against older people who own property may be clouding your judgement.

There has not been a “wealth transfer” from young to old. It is a sad fact that young people do not have wealth unless they inherit it from older people. People acquire wealth over the course of their working lives, and that may include benefiting from asset price appreciation. The function of financial intermediaries is to facilitate the transfer of funds (in the form of loans) from those who “have” (often older people) to those who “haven’t” (often younger people). Your exclusive focus on debt means that you have failed to understand the relationship between savings and borrowing, and by extension therefore you misunderstand the relationship between young and, er, middle-aged. Elderly people are to a considerable extent dependent on you, of course – the transfer goes the other way.

The excessive credit creation of the 00s raised house prices, which benefited those who already owned property (generally older people) at the expense of those who didn’t (generally younger people). It is absolutely correct economically to regard the benefit property owners have received from increasing house prices as savings – without the quotation marks.

There are an awful lot of older people who have benefited in this way – rather more than there are of your generation, actually, since we are talking about the baby boomers. If and when those people are forced to sell their houses to pay for their care, the resulting increase in house supply might benefit younger people in the form of price reductions. But there are powerful vested interests that do not want house prices to fall – not least the baby boomers themselves, who want the State (ie you) to pay for their care so they can keep their houses. I’d fight this tooth and nail, if I were you. And there are other factors than money creation contributing to house price inflation anyway, such as the UK’s dismal house building record.

You are trying to blame everything on the banks and not seeing the complicity of households, businesses and government in inflating property prices. For what it’s worth, I think the UK housing market is overvalued and a fall in house prices of around 30% is required. And I would like to see government action to stimulate house building. We do have to be careful with construction though – after all, if you build too much property prices crash and you end up with Ireland….

Oh, and senior bank staff are people too, of course. Like I said, people benefit. You may not like those people much, but that’s a value judgement.

Frances Coppola

Sorry, I should make that third paragraph clearer. People who already owned property acquired more savings as a consequence of property price appreciation. That was balanced by higher debt among people entering the market for the first time. I’m not defending this, just noting that that’s how the relationship between savings and borrowing works.

Serial Renter

But you must except that this scenerio was caused by a lethal cocktail of excessive bank lending and the abolition of traditional lending multiples.Healthy developed balanced economies that invest long term in innovation and manufacturing creating real assets and dont suffer from property Bubbles.compare German GDP to ours and then compare their house prices to ours

Ben Dyson (Positive Money)

I think your personal feelings of envy and anger against older people who own property may be clouding your judgement.

Not at all. The point I’m making is that the housing bubble has put most new buyers in the position where they will give up twice as much salary simply to afford somewhere to live.
Graham Hodgson

@Frances Coppola
“It is absolutely correct economically to regard the benefit property owners have received from increasing house prices as savings – without the quotation marks.”

Asset price appreciation is not saving, it’s speculative gain. If realised by liquidation of the asset it’s the return on savings. Only at the point of liquidation is there a relationship between debt incurred by the purchaser and the returns received by the seller. The purchaser’s equity in the asset at the point of purchase is the full and only extent of their savings.

Pablo

What you are proposing is in fact a monopoly on creating money (via your proposed souped up MPC). What we have now is an oligopoly. Logically, you are moving in the wrong direction. If the current oligopoly can’t be trusted, it makes no sense to replace them with an even more concentrated form of management (your MPC). Rather, we should be looking to split the banks up by business line (retail from commercial from investment etc) and broaden the numbers so that none are too big to fail.

donald dietrich

Hi Pablo, The monopoly by the MPC you mention is a monopoly, if you can call it that, of the people of this country. If anyone should have a monopoly, it should be the people of the nation. Not private institutions. Our currency should be created for and on behalf of the people. The MPC are a government body and thus owned by the people. What PM suggests, is that money creation should be completely transparent and subject to parliament scrutiny. The splitting up of the banks and the retail and commercial elements is a small step but does nothing to address the problem of the creation and allocation of our currency. Continued subsidizing through deposit insurance by the taxpayer will continue to invite risky lending by these private banks. Why would you need it otherwise?

Pablo

Donald, if there is one thing you can be absolutely sure of, its that the MPC is most certainly NOT a monopoly of the people. This is naive rubbish. The MPC is an unelected body of supposed experts ultimately appointed by the govt. That’s the self same govt (Labour or Tory controlled, take your pick) that failed to properly regulate the financial sector and allowed a dangerous, too big to fail banking oligopoly to arise in the first place. Concentrating power in their (the MPC’s or rather the govt’s) hands will not solve the problem nor will it deliver money creation under the control of the people.

donald dietrich

Obviously there would have to be changes in regards to the duties of the MPC. For one they wouldn’t try to control the money supply via interest rates. That would be abolished. The fact that they would be accountable to parliament with full disclosure and transparency, they would affectively be agents of the government and thus the people. Is this not democratic? Weather or not they are voted in is not my decision to make.
How could it not solve our social and economic problems? All new money would be created and spent into the economy through tax revenue, for social needs, for the people.
Your right this will not deliver money creation under the control of the people, just our representatives in government. Since the allocation of this money will be a political decision. Not the decision of the MPC. Only the amounts would be decided by them as they will be in charge of watching inflation.

Doly

I have noticed how you carefully side-step the centre of Isabella’s argument, which is that money has always been debt (according to David Graeber).

If you are proposing a new paradigm, you need to show how the paradigm actually works, and that it’s substantially different from what we have now.

Your argument seems to be: let’s suppose the central bank creates money, and it isn’t created as debt. Fine, it’s created with a zero interest rate, which is what all central banks are doing right now. And that helps exactly how?

Your proposal is: “The Monetary Policy Committee (MPC) would authorise the creation of as much new money as they believe the economy (in other words, companies and households) needs to function healthily, and no more.” That pretty much defines how money is created right now. Only difference is, instead of some central commitee working it out to the last digit, central banks do a broad estimate, and leave the fine detail to normal banks. It’s a decentralised solution. What’s wrong with that, exactly?

donald dietrich

Hello Dolly, I don’t think that “money being debt” was side stepped. To think that it always has been debt is to ignore history. There have been many times in history where money was not created a debt both in the US and England. So its a very vague statement.

As for the Central Bank creating money interest free like they are doing now, is a misinterpretation of money creation. We,the public do not use money created by or traded through the B of E, unless of course your talking about paper money.

With PM’s proposals the MPC would create our currency interest free and spend and lend it into our economy interest free with no need to pay it back as taxes will do the job of reducing money in circulation. This is beneficial because it would mean no more public sector austerity measures and the social needs of our society will be met first and foremost. It would also slowly eliminate the national debt as interest free money would pay down interest incurring debt etc.etc. What’s wrong with the way things are now is that the needs of society are not being met as 92% of our currency is created and allocated to speculation, doing nothing for GDP and enriching the few at the cost of society. Spend a little time on PM’s website. Everything is explained in detail and will give you a better understanding of our proposals. Hope this helps.
John Morrison

Doly

“money has always been debt “ – in some sense this is true but in a strict sense it most definitely not true.

A very natural way for a government to issue national currency into the economy is to create it to pay the income of those that work in public services. It is a fair way of getting the nation as whole to share the cost of creating and maintaining public services. The workers receive what is effectively a government receipt for their work and the nation is obliged to honour that work by accepting those government receipts for any goods and services they are offering for trade.

In banking terms an asset has been created, the money, and the corresponding liability is the obligation of the nation to accept that money in exchange for those goods and services. However this liability of the nation is collective and different in many senses to what we would normally call a liability:

The liability falls on no-one in particular. No-one can demand that you take their money and give them something in return, they can only demand that if you offer goods and services for trade then you accept their money in exchange.

Meeting the liability doesn’t hurt any individual. As you hand over goods and services you receive the money which is now an asset in your hands that you can spend.

The language of ‘assets and liabilities’ is not a good fit for a national currency which is no surprise because it is a language that has evolved out of what banks do. A democratic nation and it money is better described with the language of ‘resources, obligations and entitlement’

What makes this work is the governments ability to dictate that all should accept the money by making it legal tender – in the same way that the road network works well because the government dictates which side of the road you must drive on. In both cases the government dictate provides comfort and security to everyone.

Note that no banks are involved with its issue, the money is a direct contract between the government and its citizens. The liability on the issue of the money is real. Although it in-debts no-one, the nation must be producing and offering for trade sufficient quantity and diversity of goods and services to match the money that it issues.

Public services are not endlessly funded by new money issue. Once enough money is in circulation, they must be paid for by recycling the money through taxation.

In short, the national currency is a sort of debt contract between those that hold it and everyone else in the nation but the money itself is not borrowed, does not have to be paid back (excess can be removed by taxation) and there is no interest or any basis for it.

The essential difference between this and the current system is that money is earned into existence rather than borrowed into existence.

By all means build banking and finance on top of this but please let us have an honest money system in which we can work and buy our daily bread without forcing our nation into debt. The debt of a nation should represent its use of foreign resources whose payment has not yet been settled and no more.

Frances Coppola

Crikey. Balance sheet terminology comes from banking, does it? I don’t think so….You are simply changing the language, not the principles involved. A “liability” is an “obligation”, and an “asset” is a “claim”. Accounting principles and practices apply as much to governments as anyone else. You really need to read some MMT theory to see how important balance sheet accounting is for national finances.

Oh, and to return to my savings theme….you correctly state that governments do not need to borrow in order to spend. But governments do need to issue debt, and they do need to keep the risk associated with that debt low by fiscal discipline. I find it helpful to think of government borrowing as a giant savings scheme. If you extinguish government borrowing you also wipe private and corporate pensions and many other forms of savings, or you force them to accept higher risks by moving to non-government bonds and equities.

Nor is government spending funded by taxation, by the way. It’s rather like the lending preceding reserves argument above – government spending determines taxation, not the other way round. Governments spend money into existence. That applies whether or not they borrow to sterilise that spending.

John Morrison

Hi Frances

I am no expert on terminology and I’m sure that the terminology of assets and liabilities has a wider application than just banking. I was trying to illustrate the asset and liability equation in the direct issue of currency by a nation. The liability against which the money is issued is the obligation of the nation to exchange it for goods and services. If you can accept that use of the word ‘liability’ then that is fine. For the nation as a whole it is a liability, it must maintain diverse and productive industry but for the people of the nation, that liability is a useful and welcome utility.

“Governments spend money into existence. That applies whether or not they borrow to sterilise that spending. ”

Sterilise ? I would be very interested to know what that one means. It sounds like making it look good in someone’s eyes, whose eyes?

Frances Coppola

John,

The terms “asset” and “liability” are widely understood because they are basic accounting concepts going back to the year dot.

I think you’ve got your obligations and entitlements a little confused. Money issued by government is a “promise to pay”, which is a GOVERNMENT obligation (liability). No-one is “obliged” to exchange that for goods and services – they are free to stuff it under the mattress if they so choose! From the nation’s point of view issued money is of course an “entitlement” in your language or an “asset” in mine.

The “obligation” (liability) of the NATION is to pay taxes in the issued currency, and the Government has an “entitlement” (claim) to those taxes, which are therefore “assets” in accounting-speak. Does that make things clearer?

“Sterilising” simply means that the balance sheet impact is zero, i.e. that expenditure is balanced by income. Because spending precedes taxation, governments must borrow if they wish maintain zero balance sheet impact (note that this is a choice not an obligation). Government borrowing can be regarded as anticipated taxation, so over the spending/taxation cycle borrowing should be extinguished by additional tax revenue – but sadly that doesn’t always happen!
Graham Hodgson

” “Sterilising” simply means that the balance sheet impact is zero, i.e. that expenditure is balanced by income. Because spending precedes taxation, governments must borrow if they wish maintain zero balance sheet impact (note that this is a choice not an obligation) ”

Not quite right. Sterilising means the monetary impact is zero. In other words the money spent by government in excess of the money removed from circulation by taxation is removed from the finance sector through the sale of bonds, so ensuring that government expenditure does not increase the money supply overall.

Doly

So it’s the idea that money doesn’t need to be paid back what supposedly resolves all problems. Strictly speaking, money doesn’t need to be paid back, nobody stops anyone from exchanging bonds for other bonds with a different maturity date. In fact, that’s done all the time.

The reason there is a payback system is as an additional layer of control. What if somebody hoarded a lot of cash for 50 years, and then flooded the market with it? For example, let’s say that you have the current situation with China and the US, where China is buying dollars because it’s convenient for them. Everybody knows that the US is posturing when they complain to China for buying too many dollars, because if the Fed really wanted to, they could put an end to it. But where there is no payback, the US would be really powerless.

If money doesn’t need to be paid back, and it’s taxes what remove any excess money, it gives governments full control and responsibility over money supply. Not to mention that there would be no way of controlling money that went to foreign countries. People usually prefer some kind of independent and fairly automatic system to take care of money supply, rather than the vagaries of a government, especially knowing that some governments haven’t been particularly well managed, and they might be tempted to reduce taxes even when it’s not needed, because that’s always a popular move.

RJ

Govt debt does not need to be paid back. And should not be as debt = money

We need more and more money for pension savings. So more govt debt means people can save more for pensions. And pension funds can invest in Govt bonds.
RJ

“If money doesn’t need to be paid back, and it’s taxes what remove any excess money, it gives governments full control and responsibility over money supply”

Exactly. Taxes or bonds purchased by non banks both remove money

And in the UK (not euro countries) its the Govt not the banks that have all the power. They either do not realise this or just refuse to exercise this huge power they currently have.

The UK could reduce tax to zero tomorrow. And drain the excess money (from less tax) by issuing investment pension bonds. So rather than paying tax we would instead hold pension Govt bonds.

Zero impact on the money supply but people have pension savings. It’s so simple that most miss this completely. But it is what actually happens when Govts issue bonds.

Thomas

The funny thing is, money creation by commercial banks actually is taught in studies of economics, BUT:

Either it is taught in a way that you can pass the tests that you are able to deal with some misleading formulas, but without understanding of acutal interrelations.

Or you learn that commercial banks create money BUT it is taught as if that was the most normal thing on earth.

Depends on your particular professor and your textbooks – and if you are studying business or political economics.
http://eurogate101.com/ matt_us

The point to realise is that the alphaville bloggers and the FT have an interest to prolong the status quo. The FT is not written for the 90% who do not benefit from the current system, but the 10% who do. As you rightly point out.

So credit to the alphaville’s Izabella Kaminska to mention Positive Money in the first place.

If money was just printed and distributed by the government, (or a government agency) rather than by further debt, of course any debt crisis could be solved. For example the Eurocrisis, could easily be solved by the ECB printing 1,5 Trillion Euro, to distribute to the countries to pay bakc 20% of their government debt, on average. Every government gets an amount, based on population numbers. (An option discussed in blogs in Germany, but of course not by the German press, who are financed by financial interests!) The amount would be similar to the Quantitative Easing going on in the UK and US.

But, why do the alphaville bloggers not promote such a solution? Have a look on the top right hand corner of the alphaville website. Credit Default Swap prices, betting on the default of Euro countries. CDS sellers, who benefit from the worsening of the crisis, sponsor the alphaville blog!

The alphaville blog is there to rubbish any European solution to the crisis, as that would hurt CDS prices.

That is why alphaville does not advocate anything as simple as Positive Money, because that would be the end of Sovereign CDS.

If anybody thinks anything else, let me know!

RJ

Matt us

Money printing is Govt backed debt. If the Uk Govt fell and a new Govt refused to accept old money as legal tender or in exchange for bonds or tax then the value of the old notes would be zero. If however they notes could still be used to pay tax they would have value. In effect notes have value because they can be used to pay tax (or buy bonds) and are therefore backed by the Govt. Govt quite rightly record notes in circulation as Govt debt.

The holders of notes (banks or non banks) include them as an asset. And the Govt as a debt liability.
Frances Coppola

Everything I have ever read about episodes of hyperinflation throughout the last century has said the same: monetization of government debt by central bank money printing is the primary cause, usually (though not always) following on a severe economic shock. The Eurozone as a whole has debt of about 74% of its total GDP and a fiscal deficit of around 4%, but because of the lack of internal fiscal transfers there are areas where the debt is much higher and unsustainable. And there has unquestionably been a recent severe economic shock. So Germany is absolutely right to be worried about inflation arising from ECB monetization of Eurozone public debt.

Money printing to write off public debt is very far from being a simple, cost-free solution as you seem to think. Even high inflation such as we saw in the 1970s was seriously destructive of people’s incomes and savings. Hyperinflation is terrible.

To find out just how terrible it is, I’d suggest you go and read up on the Weimar Republic of the early 1920s, and since WWII Hungary (twice), most of Latin America, Greece, China, Russia, Poland, Zimbabwe….All of these have experienced hyperinflation due to the combination of economic shock (sometimes self-created, admittedly) and monetization of unsustainable government debt. The consequences for their economies have been simply appalling. I really don’t want to see the Eurozone (or the UK, for that matter) going down that road.

Ben Dyson (Positive Money)

@Frances – uncontrolled money creation is a bad thing. That applies if it’s the Zimbabwean government creating the money, or the banking sector. The point is that money creation by the banking sector isn’t limited: it doesn’t stop when inflation goes up, and in fact it might actually accelerate if the inflation happens to be a housing bubble. What we’re suggesting is that the state would only create money as long as inflation is not rising beyond the target.

In short, with the current system, banks have an incentive to constantly increase the money supply, and that had led to significantly inflation year on year (especially in housing). If we want to stop inflation, we need to stop banks creating money.

Frances Coppola

I was replying to the naive comment above suggesting that the Euro crisis could be solved in a flash by money printing. It really can’t.

However, unlike you I don’t trust politicians not to interfere with the MPC. Osborne made a blatant attempt to involve the BoE in fiscal expansion at the Tory party conference, which would have seriously compromised the BoE’s independence. So far it has resisted, but for how long? And once the BoE is subject to political control, the MPC will not be far behind. You are incredibly naive if you think political control of the money supply will prevent inflation. History simply does not support that.

I agree that excessive credit creation by banks caused asset price inflation. But blaming banks alone for the credit bubble and associated inflation ignores the fact that households, businesses and government alike all enjoyed the benefits of easy credit – which is why no-one wanted to end it even though there were clear warning signs that it was not sustainable.

DozyHole

Everyone seems to like easy credit and I hope we can agree that’s not always a good thing.

Banks made this easy credit available because it’s in their interests for obvious reasons.

Frances does not trust the politicians, understandably. Ben does not trust the bankers, understandably.

The power to control the money supply needs to be taken away from both, that’s why I support positive money.
Frances Coppola

Dozyhole,

I don’t trust any of them, actually. But an automatic process that isn’t under the direct control of either group looks the best option to me. Let the money supply respond to market conditions and stop trying to control it.

There is no way the MPC can be considered in any way independent of politics. It is a subset of the BoE which is wholly owned by, and accountable to, the Treasury. I admire Ben’s idealism, but reality falls a long way short.
Frances Coppola

Oh, and I’ll remind everyone AGAIN that it was not just banks that benefited from easy credit. Households, businesses and government all loved it too. Households, because they could buy bigger houses and more stuff: businesses, because households buying more stuff was good for business (and their own funding costs were reduced as well): government because more consumer spending = more tax income. We really need to understand that the credit bubble and ensuing crash was a consequence of excessive risk taking by banks, households, businesses and governments alike.

Chris Sharp

It is a zero sum game. Basic game theory. If you compete then you will either gain the most or lose out. If you cooperate then you both gain – albeit slightly less than the maximum.
It is easy to see why people would be deceitful in order to gain the most while letting others suffer, but really shouldn’t we all be helping ourselves and each other? Shouldn’t we reward acts of social goodness rather than greed?
We often get the old “But we need to allow them top dollar else all the best people will go elsewhere” – but it has been shown that pay and performance do not correlate and, in fact, most of the directors and traders at the top of the table show more psychotic traits than some of the inmates at Broadmoore. So we reward psychotic, greedy individuals rather than those attempting to improve the world.
As foolproof as that sounds I’d like to try a different way.
vlade

Sorry, all money except for useable-commodity-money is debt (and then it’s usually called barter, for if you were to trade say in oil-backed money, you’d most likely rely on promisory notes in some storage anyways).

Any money that has intrisnicaly 0 value is “just” a time transformation of assets and liabilities.
That is, to have a non-intrisnic-value (NIV) money, you need two parties to the transaction. Nothing to do with any banking system whatsoever, 100% or even 1000% backed. Even if a toy Robinson Crusoe and Friday economy, if they start to use money, it’s “debt”, backed by future coconuts or whatever.

When you say “I’m willing to accept this money”, you’re saying that you’re willing to take on someone’s else’s liability, because you believe that you’ll be able to use it to extinguish your own liability in the future. Nothing less, nothing more. To an extent, it’s irrelevant whether the original liability was created by a CB or a retail bank or whoever.

For all terms and purposes, NIV money (and for the clarity, gold money is NIV as well) is but a crystalised trust (and it’s value depends on how pure the trust crystals are). You know, the selfsame word that is the latin root of credit.

http://www.facebook.com/groups/327886425672/ Joseph Hitselberger

The concept of replacing paper money with metal essentially turns questionable decision making into no decision making. Falala, the quantity of money is determined by the quantity of metal. Instead of bankers and governments having franking privileges you give it to mine owners. The lack of monetary elasticity would bring either deflation or inflation. Hard to tell at a given point, as no one is making any decisions. If you allow banks to live while converting to metal you are only encouraging more debt to the banking industry.
RJ

Agree. Money is a financial asset and all financial assets are always backed by a (debt) financial liability. This is without exception and is impossible to avoid.

Using gold or silver etc to buy an asset or product is barter. It is not a money exchange.

The problem the Uk has at present is too much non Govt debt and not enough low interest Govt backed debt.

What PM are promoting is more zero interest Govt backed debt. The problem with this suggestion of cause is the impact on inflation.

Govt bonds drain either reserves or reserves and bank deposits (money). People or companies (esp pension funds) hold bonds (which removes bank deposits from the banking system) rather than investing in other assets. If bonds do not replace addition Govt backed money asset (shares or property) inflation will almost certainly take off as a lot more money chases the same value of assets.

So while I agree with more Govt backed debt (but I woudl definitely continue with Govt bonds. PM need to state how this additional money will not cause inflation. And where will pension funds invest their money if not in interest bearing Govt bonds.

Nic the NZer

The reason you can’t understand the inflation question is simple enough RJ. First of all there are several types of money (as you know). There is bank money which banks and financial institutions use for exchange but nobody else uses. Most people are ignorant of the fact that banks have their own kind of monies to settle in. The other kind is the kind of money people understand, what can be spent. Obviously there are some overlaps.

The point being inflation in the banks money doesn’t imply inflation in the spendable money. Also inflation in the spendable money, doesn’t have to mean inflation in the bank money.

An extremely abridged explanation of the PM proposals would be to abolish bank money and stop private banks (except the government bank) from creating spendable money. Then all the non-cash stuff outstanding in the spendable money is converted into ‘cash equivalents’, all is now produced/tracked by the government bank only.

So you can see that this is not inflationary because the amount of spendable money has not changed! Yes, the spendable money drives the inflation, many people don’t even know bank money exists, after all.

Any devaluation of the money would only be caused if the MPC decided it was necessary. So there would not be any inflation, unless the MPC decided there should be some.

Of course leading up to 2007 there was inflation (of the spendable money), masses of it for years and years. The MPC didn’t want any more than 2% of it to happen either, but it was out of their hands because they only control bank money, not the real spendable money which people actually use.

http://www.facebook.com/groups/327886425672/ Joseph Hitselberger

Really, Ben Dyson is quite brilliant for understanding the problem. I came to these same conclusions not through Ben, but from a different direction, that being largely economic theory. Addressing banker economists can be done through core economic theory.

With Keynes, Keynes key contribution was the idea that weak aggregate demand was a key cause of the Depression. What Keynes did not understand was that demand can be created from nothing (similar to credit). That demand is best created by positive money, not credit.

With Milton Friedman, Friedman realized that the banks had essentially slashed the quantity of money. One has to understand fractional reserve banking to understand how that was so. What Friedman said was true. However, Friedman applied his quantity of money analysis to banking policy as a substitute for the economy as a whole. Quantity of money analysis is more appropriate for the economy as a whole, rather than banking. That quantity of money, of course, is more easily controlled through positive money. The enhancement of credit, justified by a banking interpretation of Friedman’s analysis, actually enhances financial risk and cyclicality, as we saw in 2008.

http://www.facebook.com/groups/327886425672/ Joseph Hitselberger

I forgot to add that an early Friedman theory was in fact to substantially increase the reserve rate. I just saw a snippet of it, but I think the idea is obvious. The overall quantity of money is difficult to control in the presence of loose credit

SteveJH

What we should be doing with these people who refuse to research the subject – despite being presented with evidence is ask questions of them.

Such as

Where does Money Come from?
How is Money created?
How is Money supplied into the economy?

If they are so sure of their arguments that we are wrong, (despite evidence from central banks saying otherwise), then they must be able tell us to quote the authority to prove they are right.
Simon

Hang tough Ben. People like John Harrison who spent all his life building an accurate clock to be used at sea to determine longitude, so saving many lives, was villified by the establishment of the time, who preferred to use the tried and tested method of astronomy. He eventually got his reward late in life. Twas ever thus, anyone who challenges powerful vested interests gets ridicule and abuse. It takes character and courage to say what is wrong, and events will prove us right in the end. I hope we do not have to wait for Ben to reach old age before there is meaningful reform. Many of us will keep on trying, however long it takes, because the present system is so unjust, and causes huge economic and social problems.

Joao Granchinho

Very well said. I subscribe. Maybe PM needs a subscribe button for the blog and comments ?

http://forensicstatistician.wordpress.com Hawkeye

Glad the money creation debate is causing a stir in the mainstream media at last!

If Izzy still doesn’t get it, then maybe she should have a chat with Lord Adair Turner (Chairman of the FSA). Here is his paper delivered at the recent European Conference on Banking which makes it clear that Ben’s stance IS correct:

http://www.mondovisione.com/_assets/files/Credit-Creation-Social-Optimality-Southampton-Uni-20110929.pdf

“The most distinctive thing banks do, the essence of their function within the economy, is that they create credit and as a result create spending power.

Banks it is often said take deposits from savers (for instance households) and lend it
to borrowers (for instance businesses) with the quality of this credit allocation process a key driver of efficiency within the economy. But in fact they don’t just allocate pre-existing
savings, collectively they create both credit AND the deposit money which appears to finance that credit. BANKS CREATE credit and money.” (My emphasis).

And to counter the view from some quarters that still harp on about the money multiplier method then Steve Keen conclusively proves that Bank loans PROCEED Central Bank Reserves (not the other way round):

http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/

Ben Dyson (Positive Money)

@Hawkeye – brilliant quotes, thanks for that. I should have had them at the ready for the CiF article!

Frances Coppola

Dozyhole

Sorry, can’t reply on stream so has to be a separate comment.

You don’t seem to understand how loan accounting works. When a bank grants you a £10,000 loan it creates a loan account for you and posts £10,000DR. The balancing posting – which is much more useful to you, as it is money you can actually spend – is £10,000CR to your current account. Creation of these entries does not require a bank to “have” deposits to lend.

You can draw that loan in cash or you can pay your car dealer by bank transfer or cheque. If you draw cash the bank must physically have cash to pay you – as with any other deposit withdrawal. You see, to the bank it makes no difference whether the deposit you are drawing is your own funds or money they have lent you. Funding is the same for both. Banks estimate their cash requirements on a daily basis based on withdrawal patterns across their customer base. Sometimes they do run out, of course. I’m sure you have experienced trying to get money out of an ATM over a bank holiday weekend.

If you pay your car dealer by bank transfer or cheque then no cash is involved. There will simply be a debit to your deposit account of £10,000 and a corresponding credit to your car dealer’s account of £10,000. This of course leaves the bank short of £10,000 to balance its books, and the bank must therefore find a replacement credit through some form of borrowing – deposit-taking, bond issuance or interbank borrowing. It is completely wrong to suggest that loan drawdown can be done electronically with no commitment of corresponding funding.

Banks have to balance their books at the end of each day. If they have a negative balance (more money drawn than received) they borrow from other banks which have credit balances, or as a last resort directly from the central bank. Hence my comment further up the stream that lending must be balanced by savings. It isn’t possible for a bank to run an unfunded overdraft. They have to borrow the money from somewhere, and they pay interest on those loans. You appear to be getting upset over the fact that they borrow the money to fund your loan after they have committed that lending to you but within the same working day. Really, does it matter?

Your idea that lending should be “pay now, have later” is seriously weird. The whole point of lending is deferred payment for goods or services desired now. It doesn’t matter whether the bank is lending you leveraged money (which is simply deferred savings, as I hope I have explained) or savings they actually have at the time of lending. YOU are deferring payment for your car.

Robert

“Er, no, money has not been privatised, because as Izabella pointed out banking has always operated like this.” Not so, at least if Jesus Huerta deSoto’s meticulously scholarly account is to be believed. He gives a pretty exhaustive resumé of the early history of banking in especially the Roman Empire and stresses the clear distinction made in Roman law between demand deposits (ie bailments) and loans, the acid test being that interest was payable on the latter but never on the former. That distinction was preserved well into the middle ages ion Europe (and far longer in Islam I believe). Draconiam punishment (eg beheading) might be visited on deposit-takers who clandestinely loaned-out the money entrusted to their safekeeping.

DozyHole

“It is completely wrong to suggest that loan drawdown can be done electronically with no commitment of corresponding funding.”

“You appear to be getting upset over the fact that they borrow the money to fund your loan after they have committed that lending to you but within the same working day.”

You obviously know much about banking but I am pretty sure the above statements are only partly true.

As there are millions of people and only a handful of banks and those banks are all creating loans together ‘in-step’ the money supply increases in the economy.

The amount the bank has to find at the end of the day due directly as a result of my £10000 loan may only be a small fraction of that amount.

The only constraint on the bank when it comes to creating new money is that it needs to have enough reserves(or cash) for the account holders to be able to access their money, which is a very small fraction of the total amount of digital money in the system.

Let me know if I am wrong here as I am very new to this.

But surly it is self evident that the banks can create this money without any commitment to borrow it themselves by the fact that our money supply is 97% debt money created by the banks?

As for the ‘pay now, have later’ comment, I apologise for this. I was thinking of the economy as a whole and not one individual person, and more of a fundamental shift in how we operate as a society and as individuals.

DozyHole

“our money supply is 97% debt money created by the banks?”

I should say interest bearing debt money, I want to avoid the ‘all money is debt’ argument:)

Frances Coppola

Dozyhole

In theory banks can indeed create unlimited amounts of credit without having much in the way of cash reserves. Credit creation is capital constrained, not reserve constrained.

How much credit a bank can create is governed by the ratio of shareholders’ funds and retained earnings (money it DOESN’T OWE TO ANYONE, which is its capital base) to what we call “risk weighted assets”, which are a way of valuing loans by their risk. Each new loan drains an amount of capital equal to its risk weighting. Banks can only lend within their capital ratios. In the run up to the 2007 crash the capital ratios were much lower than they are now and were widely ignored anyway. Now capital requirements are much higher, which limits lending (as I am sure you can see), and hopefully regulators are being tougher about enforcing them. The problem with this is of course that calculating risk weightings is a bit of a black art, and risk classifications can be intrinsically wrong: e.g. sovereign debt is weighted at zero, which means banks can lend unlimited amounts to governments because their debt is assumed to be risk free – but we all know that’s not true, don’t we? So we are trying to move towards constraining leverage as well, which is the ratio of capital to deposits. As each loan creates an equal deposit, forcing banks to restrict their leverage would also have the effect of limiting lending.

You are making the same mistake as everyone else on this thread, though – confusing loan settlement funding with credit creation. Loan settlement can only be funded with savings. Banks cannot “invent” the money to fund loan drawdown. However, as I showed in my earlier example, your loan becomes someone else’s savings when you spend it, and those savings can then be lent back to your bank in the form of a deposit or through the interbank market and used to settle other lending. It’s circular – and always has been. Digital money makes no difference to this process.

Credit creation is the process by which the money supply inflates. It is a consequence of the way loans are accounted for and the fact it isn’t possible to distinguish between a customer deposit and a deposit arising from lending. Both are counted in broad money supply figures. And I don’t think digital money has any effect on this either. Accounting entries can be made in ledgers with a pen just as easily as by tapping numbers into a computer. And payment by cheque is just as cash-neutral as digital transfer. In her original post Izabella suggested that the reason for the credit bubble in the 00s was the worldwide savings glut looking for a return – ie that savings precede lending, which is the traditional view, isn’t it? To be honest which comes first is immaterial. Lending generates savings which generates lending which….both inflate together and it is very difficult to tell which causes which.

Oh, and one final point. Banks do in fact borrow money. Lots of it. Banks are more highly leveraged than any other type of company. If they didn’t need it to settle lending, why would they do that? After all, they have to pay interest on those loans. And one of the major causes of the financial crash was banks refusing to lend to each other. That’s what caused the failure of Bear Sterns and Northern Rock. If those banks could have invented the money to settle their excessive lending they wouldn’t have failed, would they?….Do think about it – it is pure nonsense to suggest that banks don’t need to borrow.

Nic the NZer

“In theory banks can indeed create unlimited amounts of credit without having much in the way of cash reserves. Credit creation is capital constrained, not reserve constrained.”

“In the run up to the 2007 crash the capital ratios were much lower than they are now and were widely ignored anyway.”

“The problem with this is of course that calculating risk weightings is a bit of a black art, and risk classifications can be intrinsically wrong: e.g. sovereign debt is weighted at zero, which means banks can lend unlimited amounts to governments because their debt is assumed to be risk free – but we all know that’s not true, don’t we?”

“Credit creation is the process by which the money supply inflates. It is a consequence of the way loans are accounted for and the fact it isn’t possible to distinguish between a customer deposit and a deposit arising from lending.”

If you can see all the obvious problems why would your conclusion be that there isn’t a problem overall. On the face of it allowing banks to create new money every time they have an opportunity to lend it is usually going to end in one result, they will create that money and lend it often regardless of the risk.

According to politicians, the financial media and most economists the central bank is in charge, but as you just explained they are not (at least for the types of money people actually use) how could that not be considered a startling revelation about the true nature of the financial system. It is certainly worthy of the description ‘money has been privatised’.

Frances Coppola

Nic the Nzer

Er, no, money has not been privatised, because as Izabella pointed out banking has always operated like this. A better description would be “money has never been nationalised”. Then we can have a sensible debate about whether it should be nationalised – which is what positive money is proposing.

I don’t think I ever said there wasn’t a problem. All I have been trying to do in my comments on this post is to explain how things ACTUALLY work – from real experience gained in 17 years in banking, plus studying, of course – and in particular to show how savings inflate through money creation in tandem with debt (because loan deposits become real deposits, ie savings, when spent) and are then used to fund lending. In doing that I hope I am adding useful information. If positive money wants to be taken seriously it really does have to get its facts right, and totally ignoring savings and funding gives a very, very misleading impression of how banking works.

I have described capital and leverage constraints. These are both methods by which the government can, if it chooses, control the money supply. I’ve also commented on the excessive risk taking by government, households and businesses as well as banks, which was the main reason why government failed to exercise its responsibility to manage credit inflation through enforcement of capital requirements and other regulations. And I agree with positive money that the savers’ guarantee in effect provides government backing for bank lending and therefore creates moral hazard, so should be dismantled. But I’m not at all convinced that handing responsibility for money creation over to a quango will make things any better, and in my view it could make them a whole lot worse.
Nic the NZer

The Bank Charter Act 1844 was effectively ‘Nationalisation’ of legal tender. The PM proposals could be thought of as the electronic equivalent today, and this would not be far from the facts.

Hardly anybody would tell you that national money has always been privatised. This is probably because their conception of money is basically tied up in their conception of currency. It is still quite valid to say that money has been privatised, because the situation has significantly changed since 1844.

Leverage constraints, even effective ones, will eventually fail for exactly the same reasons that Glass-Stegal failed. That is why can understand every single detail in banking and still fail to grasp the actual nature of the problem.

Most people will tell you that the Bank of England is in charge today of money creation. The PM proposals make money work the way most people believe it already works, including the MPC/Quango part, why is that a bad thing?
Simon

Ther other issue is whether money is created free of interest. Europe may have to do it anyway to deal with their club Med debt problems, despite Gremany’s understandable fear of inflation.

DozyHole

“Banks cannot “invent” the money to fund loan drawdown. However, as I showed in my earlier example, your loan becomes someone else’s savings when you spend it, and those savings can then be lent back to your bank in the form of a deposit or through the interbank market and used to settle other lending”

But the net effect is that they do ‘invent’ the money as I draw-down my loan, surly. If the car dealer is in the same bank as me then the bank does not need to borrow at interest as the money just moves from one account to the other?

I am pretty confused when you say banks cannot ‘invent’ the money. Are you disputing what we are all taking here as a fundamental truth? Banks create money.

Frances Coppola

Dozyhole

You still aren’t “getting” the difference between credit creation and funding, are you? To reiterate:

1) When a new loan is granted the money supply inflates by the amount of the associated deposit. That is the “money creation” bit. That’s what Adair Turner is talking about in the link provided by Hawkeye.

2) When that loan is drawn the bank must plug the funding gap that arises from the fact that it no longer has that deposit.

3) It plugs that gap by borrowing from customers, other banks or the financial markets. Yes, your loan drawdown may form part of that borrowing if your car dealer uses the same bank as you. But the bank will be paying your car dealer interest on his deposit (pitiful, admittedly), so even though the bank created that deposit it still in effect borrows it at interest.

The bank doesn’t have to plug the funding gap at the actual time of drawdown, but it must do so by the end of the day, otherwise it will run an unauthorised overdraft at the Bank of England (which is the “banks’ bank”) and get hit with penalty charges. Just like you, really. Your current account can go over its overdraft limit during the day provided sufficient funds are received by the end of the day to get it back below its limit. You don’t regard that as “inventing money”, do you? It’s simply a timing difference – payments going out earlier than funds are received. That’s all.

Oh, and just in case there are banking nerds out there who have spotted that I am only talking about committed lending – with uncommitted lending (eg an overdraft) the money creation occurs when the facility is drawn, not when it is granted. But the funding is still a completely separate matter. The actual drawdown is funded by borrowing in the way I’ve just described. It is the accounting entries that “create money”.
Nic the NZer

How does ‘plugging the funding gap’ post facto, change the nature of the thing which these banks already did ‘create the money and lend it’.

In what circumstances can the Bank of England say, no too much inflation, no more new money for you. Fund in advance until we want the economy to expand (and no fiddling with your risk weightings in the mean time).
DozyHole

Frances

I do get it, I’m more certain now than I ever was, thanks.

You have also given me good insight into how the system is justified, probably to students and politicians alike.

“Your current account can go over its overdraft limit during the day provided sufficient funds are received by the end of the day to get it back below its limit. You don’t regard that as “inventing money”, do you?”

No, I would not. There is only extra money for a brief period only. This is in no way comparable to how banking and money creation works today.

I am almost certain now that you do not understand the money creation process.

If I never draw down my loan then it is still a deposit, no different to if I put cash in the bank. This can be loaned out to another customer, I even get interest, although pitiful, like you said.

What came first, loan or savings. Well in this case it was my loan which then became my savings. I suspect that’s always the case in the current system.
RJ

“I am almost certain now that you do not understand the money creation process.”

I’m sure Frances does

What Francis is referring to (I think) is the bank settlement process with other banks

If a bank loans 100 million

The banks journal entry is

Debit Customer loan 100 million (bank asset customer DEBT)
Credit Customer deposit 100 million (new MONEY)

If the customers then use this money to buy say houses from sellers that bank at DIFFERENT banks

The bank then

debits Customer deposits
Credit Inter bank settlement

The bank must obtain (or have) BoE reserves to settle with the other banks. If it does not have these reserves the bank must obtain them. This then becomes the banks debt (liability) to offset their customer debt asset.
DozyHole

Hi RJ,

I understand that is exactly what Frances is saying and it is correct only to a point.

You can’t ignore the NET effect of banks all making loans and settling with each other and themselves in a closed loop. This is the reality and most of the time extra reserves will NOT be required.

To then say that banks do not ‘invent’ money is nonsense.
RJ

The banks create money when they make a loan

This can be easily seen from the above journal entry. From the banks viewpoint though this new money is the banks LIABILITY. It’s our asset.

The banks liability must be always matched by a bank asset in the form of a bank loan. This is the banks asset but our DEBT liability.

So Frances is basically right but seems a bit confused about assets verse liabilities. Deposits are a LIABILITY for the bank so the bank is better off when deposits decrease. So this statement is not really correct

“2) When that loan is drawn the bank must plug the funding gap that arises from the fact that it no longer has that deposit. ”

The funding gap as Frances calls it is due to the settlement with the other bank. The customers deposit (liability) transfer create a inter bank settlement obligation.
Nic the NZer

When the inter-bank settlement involves the central bank then new reserve monies can be and frequently are created through this interbank settlement. That’s why the whole credit process expands the money supply. Of course the private bank has no way of knowing if they will find reserves or not when they extend credit. The alternative to finding the credit is some sort of adjustment or risk weightings in the banks books.

This is also why the system would work in a completely different way if they always found the reserves before extending credit (but they don’t). Come on RJ, you know these facts.
Nic the NZer

“The alternative to finding the credit” should have read, “The alternative to finding the reserves”.
Graham Hodgson

@Francis Coppola
1) When a new loan is granted the money supply inflates by the amount of the associated deposit. That is the “money creation” bit. That’s what Adair Turner is talking about in the link provided by Hawkeye.

This statement is correct.

2) When that loan is drawn the bank must plug the funding gap that arises from the fact that it no longer has that deposit.

3) It plugs that gap by borrowing from customers, other banks or the financial markets.

These misrepresent what happens.

Assuming 2) refers to payment to a customer of a different bank (“it no longer has that deposit”) the bank does not seek to replace that deposit. The point is that the receiving bank has acquired an additional liability to the payee and demands a balancing asset. The lending bank provides that asset by transferring money from its own account at the BoE. The lending bank’s reserves diminish to balance its diminished liabilities. The receiving bank’s reserves increase to balance its newly acquired liabilities.

It is only if the lending bank’s own account holds insufficient reserves that it needs to borrow – just as you or I would have to. In that case it would, it is true, acquire a deposit liability towards the lender to match the amount that it needed to borrow in order to meet its interbank settlement liability, but it didn’t borrow in order to acquire that liability.

Robert

At last a comment which gets to the heart of the matter. Regrettably whilst I admire the sentiments I can’t echo them though. There is nothing on this earth which will induce the inherently selfish (psychotic is about right) Gordon Gecko clones to moderate their behaviour voluntarily, and the upper echelons of the banking and financial fraternity are bulging with such people. Only draconian intervention (along Glass-Steagall lines, on the timescale Michael Meacher advocates), combined with fundamental slightly longer-term structural reform of the kind PM advocates can offer any hope of real change.

Frances Coppola

Dozyhole

I do indeed understand that the banking system as a whole creates money. But that doesn’t happen at the time of settlement – it is a consequence of double entry accounting and the fact that lending precedes reserves. And because the money creation is an accounting construct, it is created as equal and opposite debt AND SAVINGS (loan and deposit). Those created deposits form part of the reserves used for settlement – which is why generally the Bank of England doesn’t have to create huge amounts of new money to fund banks. It creates some, of course, all the time.

RJ

Thanks. I’m not really confused about assets and liabilities. It depends whether you are seeing them from the customer’s point of view or the bank’s.

Strictly, yes, banks are better off when deposits increase, because paying savers is more expensive than borrowing on the interbank market. However, funds borrowed from other banks are just as much debt liabilities for the receiving bank as deposits. From a balance sheet point of view there is no difference, but there is a difference in terms of income/expenditure.

There is also a difference in risk. Northern Rock was terribly dependent on borrowing from other banks because it had nowhere near enough deposits to fund its inflated mortgage book. When the interbank markets froze after the collapse of Bear Stearns, Northern Rock lost its primary source of funding and had to seek emergency liquidity support from the Bank of England. That spooked depositors and caused the famous run on the bank. But it was the failure of INTERBANK lending that caused the problem in the first place. A bank that is very dependent on overnight interbank funding is very at risk when liquidity is tight. If it is funded mainly with longer-term deposits – especially notice deposits – it is much less vulnerable. That is the main reason why banks need deposits – they are a more reliable form of funding. But that’s not necessarily a reason to eliminate the interbank lending market completely, which is in effect what Positive Money are proposing. It’s really a question of how much risk you are prepared to accept in the banking system.

Nick the Nzer

Currency is nationalised in the sense that only the BoE and the Royal Mint can create legal tender. Money creation is not.

The simple reason why Positive Money’s idea is awful is that it will create the mother of all credit crunches. The fact is that most people’s long term savings now are not in bank deposit accounts – they are in managed funds. Those funds are invested in banks, for example through share or bond holdings, and some of those funds may be available to banks for settlement through the money markets (repo). But for 100% reserve banking to work, people have got to put far more of their savings into bank deposit accounts, probably including their private and corporate pensions. You simply can’t ignore the impact on savings of Positive Money’s proposals, and you can’t start restricting people’s saving choices in that way.

And regarding the BoE saying “no more money” to banks – it would be a very brave central bank indeed that said to businesses and households “Sorry, we’ve issued all the money we want to. You can’t have your mortgages and business loans”.

Graham Hodgson

“Those created deposits form part of the reserves used for settlement”

“banks are better off when deposits increase, because paying savers is more expensive than
borrowing on the interbank market”

I’m completely confused by the logic of these comments.

Reserves are used for interbank settlement of customers’ payments. Payments between customers within a bank are settled by transfer of deposits. Deposits don’t form part of reserves. They constitute a different form of settlement.

Deposits increase when loan are advanced. This exposes the bank to loss of reserves if payments from those deposits involves interbank settlement. Deposits also increase if customers receive payments from customers of other banks. This is accompanied by an increase in interbank settlement reserves at the time payments are received but exposes the bank to future loss of those reserves as these deposits are spent.

Savings increase when depositors decide they don’t intend to spend their deposits and notify the bank to that effect (by transferring funds to savings accounts). The bank knows from this that it is less exposed to the loss of reserves through interbank settlement of the payments they might otherwise have been faced with.

An increase in loan funded deposits increases the risk of loss of reserves to settle interbank payments.

An increase in payments funded deposits increases actual reserves short term but increases the risk of loss of reserves in the longer term.

An increase in savings reduces the risk of loss of reserves.

Interbank borrowing is only required when reserves are lost through interbank settlement of customer payments.

Interest payable on interbank borrowing is cheaper than interest payable to customer savers(?).

So banks would far rather all their customers were transactors and none were savers.

So the idea that banks serve as intermediaries between savers and borrowers is a burdensome imposition.

I think we need to review the charter under which banks operate.

Oh. That’s what we are doing.
Nic the NZer

I have to totally disagree that a credit crunch is necessary after reforms. Certainly are not getting out of the crisis without some form or reforms, have you seen David Cameron’s latest plan for example.

For a start, to point out, there has to be a re-balancing of the economy anyway, regardless of financial reforms.

“The fact is that most people’s long term savings now are not in bank deposit accounts – they are in managed funds.”, Sure, so you are implying a massive re-structuring of the financial institutions where by they can’t keep servicing these obligations. Can you explain why this would have to happen? I don’t see why is has to be massive.

“But for 100% reserve banking to work, people have got to put far more of their savings into bank deposit accounts, probably including their private and corporate pensions.”, No, totally disagree with this. Most money will still be invested and when this occurs will end up in deposit accounts (of the borrowers) and in the form of investment agreements of the lenders. This is the ideal. In fact it’s not that different to what we see today (most money is invested ‘productively’). The main improvement is that this investment functions better, because asset speculation is not so successful.

Of course the government policy selected, will be important to make this work. A Japanese economist Kaoru Yamaguchi made a model and suggested an alternative approach to reform, gradually raising reserve ratios. Maybe this could be safer, maybe not.

RJ

Frances has raised a good point. if pension funds can not invest in interest bearing Govt bonds. Where will they invest their money

And how will this not cause massive monetary inflation if Govt bonds (an investment asset) as no longer available.

Nic the NZer

I suggest a well structured mortgage lending scheme would be pretty safe, as long as the economy is not being de-railed by a financial crisis every 10-15 years.

There are many dull businesses which have steady output, and therefore (without massive financial instability and inflation) stable income.

RJ

Do you realise how much money is currently invested in Govt bonds.

If these bonds disappear then the same value of money will be chasing a much smaller value of assets

It will lead to very high inflation. It can be the only outcome.
RJ

As Govt bonds is another asset for investors to invest their money in.
Graham Hodgson

Nothing in our proposals requires the retirement of government bonds. The fact that the government acquires an additional source of finance enables it to consider whether it wishes to continue to roll over existing debt while reducing taxes or increasing expenditure, or whether it would prefer to pay down government debt instead. The decision on what use to make of the funding is deliberately left up to the government.
Nic the NZer

What do the government bonds get leveraged into, when the bank uses them for reserves? Look at that, its the housing market.

Anyway, didn’t Francess Coppola say there would be a shortage of lending, not a shortage of places to invest. Can’t have it both ways.

kaya

An interesting topic I have followed avidly for about 3 years now. All I can say is after reading both sides I am more positive today than I ever was that Ben Dyson’s view is the correct one. When I read the article by Izabella Kaminska I couldn’t help but note that those who oppose PM’s viewpoint never seem to do a very good job of promoting their point of view. I have to say the same applies after reading all of your posts here. You are obviously knowledgeable in an economics/banker sort of way but your arguments have no merits to me.

I am absolutely convinced that the power to control our means of exchange should NEVER be allowed in private hands. I believe this more passionately than about any other facet of my life. I am not a socialist/communist/anarchist. I just know that the banking system in it’s present form is inherently wrong.

You keep alluding to the fact you have no trust of Government not to interfere with any body set up to control the system. At least with a government the public has a small measure of control via the ballot box. We have no control over the banks.

I have watched the banking system change over the last 40 years, from a resepected institution which looked after your money, paid interest and made prudent loans into what can only be described as a greed driven parasitical monster which is threatening to cause havoc for the majority of people on the planet. There are no equations in any of the econnomics/astrology/clairvoyance books that can convince me otherwise.

Above all, the stunning greed of those who operate in this sector is reason alone to change it.

gaz

“FT Alphaville readers…will, of course, know that that little revelation was probably last considered to be breaking news in 1913.”
How come the majority of the population won’t believe it then? Including people who work in finance?

DozyHole

I would not be surprised if the author of that FT Alphaville blog went on a mad scramble for information after reading Ben’s article.

Probably a little embarrassed that she had no idea what he was talking about. That would explain that comment somewhat.

This may not be what happened but this kind of thing would not surprise me one bit, and like Ben has touched on, it’s pretty certain at this point that David Cameron does not understand the current system.

kaya

You can absolutely guarantee that those with a vested interest in maintaining the status quo (and FT Alphaville is certainly one of those) will say and do everything within their power to discredit people like Ben Dyson. The frightening thing for them is that nothing they do is stopping the momentum that is building. People are finally asking questions and becoming aware of what has essentially been a Ponzi scheme run for the benefit of a small percentage of the population.
The money supply is not (and never should be) a private commodity. It is our means of exchange and should be managed prudently for the benefit of all and in a manner that encourages protection of our planet and resources.

Bping

Hi Ben

First I need to congratulate you on your initiative.At least someone is trying to do something about this entire mess.

Second, if there is anyone that understands how degrees are NOT important to understand the economy it is me…I have an MBA and throughout my course not even ONCE we touched money creation. Not even sure if some of the lecturers understand it. Thank you for making this point clear.

Third, the ad hominem argument i.e. character assassination by the FT blogger is just disgusting.Talk about prejudice. Maybe with all her degrees and experience has a better solution for the economy…

Anyone can make things more complex as Einsten said: “Any intelligent fool can make things bigger, more complex, and more violent. It takes a touch of genius — and a lot of courage — to move in the opposite direction.”

Fourth, can you please work on an infographic for us? That would make the message clearer for everyone to understand.

Ben Dyson (Positive Money)

@Bping – apparently Izabella’s degree is in ancient history!

Yes, we’ll be rebuilding almost all our videos and website, making it much more visual, and infographics will be an important part of that. They do make things much easier to understand.

http://www.simondixon.org Simon Dixon

Well I have a degree in Economics and a Masters too and I agree with Ben Dyson.

Not that it matters, I spent my time after university unlearning the false facts I was taught.

Good to see mainstream coverage.

Well done.
Simon Dixon
kaya

Keep up the good work. The smoke is clearing and the mirrors are almost all broken!

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